Repair of Roads – No Service Tax - holds Commissioner (Appeals) – Revenue loses in spite of all clarifications
A recap:
We first reported the issue in DDT-798-06.02.2008. The Madhya Pradesh Chief Minister, Shivraj Singh Chauhan sought exemption from Service Tax on maintenance or repair of roads. Our very own PC, the FM (as he then was) wrote to the CM that it was not possible.
In F.No.B1 / 6 /2005- TRU , dated : July 27, 2005 , the TRU clarified,
16.Maintenance or repair service
16.2 Prior to 16/6/2005, such services covered maintenance or repair or servicing of any goods or equipment, excluding motor vehicles. However, since 16/6/2005, services relating to maintenance or management of immovable property (such as roads, airports, railways, buildings, parks, electrical installations and the like) have also been covered under the purview of service tax. Such services would be taxable when provided under a contract or an agreement by any person or by a manufacturer or any person authorized by a manufacturer.
In the latest Circular - No. 110/4/2009-ST Dated: February 23, 2009, the Board had clarified that though definition of taxable services viz., ‘Commercial or Industrial Construction Service' and ‘Management, Maintenance or Repair Service' do not specifically provide for levy of service tax on construction of road , a conjoint reading of these two definitions will lead to the conclusion that maintenance or repair of roads is a taxable service under the purview of ‘Management, Maintenance or Repair Service'.
So, as far as the Board is concerned, ‘repair of roads' is taxable.
There is at least one Appellate Commissioner who does not think so. In a path breaking order delivered last week, the learned Commissioner (Appeals), Vizag, held that repair of roads is not taxable.
The Commissioner held,
As seen from the definition the activity covers construction, completion and finishing and repair, alteration, renovation or restoration or similar services and the definition itself specifically excludes such services provided in respect of roads, airports, railways, transport terminal, bridges, tunnels and dams. From the above it is evident that not only construction services but also repair services provided in respect of roads are exempted from tax. Though the same may also fall under management, maintenance or repair service in terms of Section 65(64) of the Finance Act, 1994, in view of specific exclusion of repair services provided in respect of roads under Section 65( 25b ) of the Finance Act, 1994 the same cannot be subjected to any tax. If the intention of the government is to subject the repair services provided to roads to tax, then the definition given under ‘Commercial or Industrial Construction Service' should have been suitably amended by omitting the words “does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.” Reading the definitions of Commercial or Industrial construction service and management, maintenance or repair services together gives a meaning that repair of roads, airports, railways, transport terminals, bridges tunnels and dams are excluded from service tax liability in view of the specific exclusion provided in Section 65( 25b ) of the Finance Act, 1994. It also implies that management or maintenance of all immovable properties including roads, Airports, transport terminals, railways, bridges, tunnels and dams are liable to tax but not repairs in view of specific exclusion provided vide Section 65 ( 25b ) of the Finance Act, 1994.
Incidentally, the Commissioner relied on the SAME Board clarification dated 27.7.2005, quoted above and states, The words maintenance or management are only finding place and the word ‘repair' is conspicuously absent.
The order of the Commissioner is sure to be challenged by Revenue, but the commissioner has opened a new avenue of repair and at least for some time Roads in Vizag can be repaired without service tax.
In , we had asked, “Is it worth taxing the road repair? 99% of the roads belong to the Government – state or central, Municipal bodies, panchayats; should the cost of maintaining the horrible roads be enhanced for these fund starved bodies?”
See the full text of the Appellate Commissioner's Order here.
Incidentally, the same issue was before the Kerala High Court recently where the assessee approached the High Court on a Summons from the Department. The high court did not decide the issue. We will bring you that case soon.
Also see
1. - 25.02.2009